As USDJPY Plunges, Ralph Elliott is Smiling Somewhere

It has been a wild ride for USDJPY traders last week. The pair opened at 111.31 on Monday and rose to 111.83 on Wednesday before crashing to 110.69 by Friday. It still managed to close the session above the 111.00 mark, but that is hardly a big relief for breakout traders, who thought joining the bulls above 111.50 was a good idea.

If they do not want to make the same mistake again, they have to understand what caused USDJPY’s sharp bearish reversal. We are not going to dwell on external factors like economic news or events to explain the pair’s behavior, because their impact can only be identified after-the-fact. Analyzing them will not make traders better prepared for the next time.

Instead, we will focus on the Elliott Wave Principle. First, because its patterns tend to absorb external information and second, because it helped us stay ahead of USDJPY’s sharp u-turn last week. The chart below was sent to subscribers as a mid-week update on Wednesday, August 29th, while the rate was still hovering around 111.20.
As visible, this chart made us expect a rally to approximately 111.80, followed by a bearish reversal. The Elliott Wave logic leading to this assumption was simple: the decline from 113.18 to 109.77 looked like a simple a)-b)-c) zigzag correction with a triangle in the position of wave b). According to the theory, once a correction is over, the larger trend resumes. And since the larger trend, which preceded this correction, was pointing north, it made sense to expect a five-wave impulse to the upside to emerge from the bottom at 109.77. On Wednesday morning, its wave “v” was still missing, hence the short-term positive outlook aiming at 111.80.

On the other hand, every impulse is followed by a three-wave retracement in the opposite direction. This simple, but important rule, indicated that USDJPY was weaker than it appeared and prevented us from trusting the bulls too much. The updated chart below shows where USDJPY stands at ahead of Monday’s open.
The five-wave impulse pattern from 109.77 was complete by the end of the day. It then took the bears two days to erase over 110 pips of its progress. While the much bigger camp of news-followers had to deal with the impossible task of predicting the market’s exact reaction to any upcoming statements and reports in the economic calendar, the much smaller group of dedicated Elliott Wave analysts was already given a hint about USDJPY’s intentions. Furthermore, in contrast to the constantly changing external data, which allows an almost infinite number of different interpretations, the Elliott Wave pattern which helped us prepare for the recent USDJPY reversal was very similar to the one Ralph Nelson Elliott discovered over eight decades ago, in the 1930s. Some things never change.

What will USDJPY bring next week? That is the subject of discussion in our next premium analysis due out later TODAY!

Stay informed with our newsletter

You may also like:

GBPNZD: Pressure Mounts with Reversal in Place

GBPNZD has been in recovery mode for the past two years. The pair took off from 1.6705 in November 2016 and climbed to as high as 2.0470 in October 2018. The pound’s rally may seem counter-intuitive on the back of Brexit concerns in the United Kingdom, but that won’t be the first time the market…

EURUSD Sharp U-Turn Predicted by Elliott Wave

2018 has so far been a terrible year for EURUSD bears and the month of October made no exception. The pair climbed to 1.1815 in late-September, but could not maintain the positive momentum. By October 31st it was down to 1.1302, losing over 300 pips that month alone. But in the Forex market traders cannot…

Solving USDJPY Riddles with Elliott Wave Hints

Unlike the stock market, where a profitable company with a growing market share will eventually grow in value in the long-term, the Forex market can be a real riddle. Macroeconomic, political and country-specific factors are fighting for influence over currency rates in the $5-trillion-a-day market. USDJPY is one of the most closely followed pairs as…

GBPJPY: Bearish Reversal Expected Near 151.00

GBPJPY has been in recovery mode since it touched 139.90 on August 15th. On September 21st, the pair climbed to a multi-month high of 149.72, but fell to an intraday low of 146.51 yesterday. As of this writing, the Pound is hovering around 147.90 against the Japanese yen. The time is appropriate to apply the…

USDCAD Unreliable Resistance Identified in Advance

After slightly exceeding 1.3000 on October 8th, USDCAD retreated to 1.2926 two days later. Given that the pair has been declining since the 1.3386 top registered in late-June, assuming the bears are returning was quite justified. In addition, there was a declining trend line, which had previously led to significant selloffs on two separate occasions.…

USDJPY Gave Us a Road Map Three Months Ago

There is a reason why it is called “trading” and not “bottom/top picking”. The latter is literally impossible even with the best trading tools and techniques. Even the Elliott Wave Principle, which we consider to be the best method for price behavior analysis, cannot tell us the exact price level at which the market is…

GBPCAD ‘s Rally Needs a Healthy Pullback

October is shaping up to be a good month for GBPCAD bulls. The pair dipped below 1.6600 on October 2nd, but quickly reversed to the upside for a recovery of over 470 pips so far. Earlier today the Pound climbed to as high as 1.7070 against the Canadian dollar. However, extrapolating the current trend into…

Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. The Elliott Wave Principle is not flawless as well. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk.

All the content, available on www.ewminteractive.com, including all the analyses, products and infographics, is intellectual property of EWM Interactive OOD and cannot be used for commercial purposes without the specific permission of EWM Interactive OOD.